Before the FEDERAL COMMUNICATIONS COMMISSION FCC 94-144 Washington, D.C. 20554 In the Matter of ) Amendment of the Commission's Rules to ) GEN Docket No. 90-314 ) Establish New Personal Communications ) RM-7140, RM-7175, RM-7618 ) Services ) MEMORANDUM OPINION AND ORDER Adopted: June 9, 1994; Released: June 13, 1994 By the Commission: Commissioners Quello, Barrett, Ness, and Chong issuing separate statements. TABLE OF CONTENTS Paragraphs I. INTRODUCTION AND EXECUTIVE SUMMARY. . . . . . . . . . . . . . . .1- 16 II. BACKGROUND. . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17- 23 III. SPECTRUM ISSUES AND SERVICE AREAS . . . . . . . . . . . . . . . . . . 24- 97 A. Allocation, Block Plan and Service Areas . . . . . .. . . . . . . . . . . . . . . . 24- 87 1. Block Positioning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . 28- 40 2. Block Size. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41- 62 3. Aggregation and Disaggregation. . . .. . . . . . . . . . . . . . . . . . . . . . . . . . 63- 71 4. Service Areas . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . .. . . . . . . . 72- 79 5. Geographic Partitioning . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . 80- 83 6. Unlicensed Devices. . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84- 87 B. Private Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88- 90 C. Mobile Satellite Service Issues . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . 91- 97 IV. OWNERSHIP RULES AND CELLULAR ELIGIBILITY.. . . . . . .98- 146 A. Eligibility of Cellular Licensees for PCS Licenses . . . . . . . . . . . ..102-104 B. Attribution Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . .105-122 C. Attribution Rules for Certain Designated Entities . . .. . . . . . . . . .123-132 D. Population Standard. . . . . . . . . . . . . . . . . . . . . . .133-140 E. Post-Auction Divestiture. . . . . . . . . . . . . . . . . . . .141-146 V. CONSTRUCTION REQUIREMENTS . . . . . . . . . . . . . . . . . . . .147-158 VI. TECHNICAL STANDARDS . . . . . . . . . . . . . . . . . . . . . .159-202 A. Roaming and Interoperability Standards. . . . . . . . . . . . .159-165 B. PCS Power Limits. . . . . . . . . . . . . . . . . . . . . . . .166-174 C. Protection of Fixed Microwave Operations. . . . . . . . . . . .175-193 D. PCS-to-PCS Interference Standards . . . . . . . . . . . . . . .194-201 E. Enhanced 911 Standards. . . . . . . . . . . . . . . . . . . . . . .202 VII. UNLICENSED PCS. . . . . . . . . . . . . . . . . . . . . . . . .203-244 A. Spectrum Allocation . . . . . . . . . . . . . . . . . . . . . .203-208 B. Coordination. . . . . . . . . . . . . . . . . . . . . . . . . .209-223 C. Spectrum Etiquette . . . . . . . . . . . . . . . . . . . . . .224-244 VIII.RADIO FREQUENCY EXPOSURE LIMITS . . . . . . . . . . . . . . . .245-249 IX. CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .250 X. PROCEDURAL INFORMATION. . . . . . . . . . . . . . . . . . . . . .251-252 Appendix A. . . . . . . . . . . . . . . . . . . . . . . . . . .Final Rules Appendix B. . . . . . . . . . . . . . . . . . . . . . . . .List of Parties Appendix C. . . . . . . . . . . . . . . . . . .Final Flexibility Statement Appendix D. . . . . . . . . . . . . . . . . . . . .Broadband PCS Band Plan Appendix E. . . . . . . . . Calculating PCS Signals at Microwave Receivers Appendix F. . . . . . . . . . Permissible Ownership of PCS Licenses by the Owners of Same-Area Cellular Systems I. INTRODUCTION AND EXECUTIVE SUMMARY 1. By this action, we amend certain aspects of our rules governing broadband personal communications services (PCS). We take this action in response to 67 petitions for reconsideration or clarification of the rules and policies adopted in the Second Report and Order in this proceeding. 2. PCS encompasses a broad range of new radio communications services that will free individuals from the limitations of the wireline public switched telephone network and will enable individuals to communicate when they are away from their home or office telephones. Broadband PCS devices are likely to be portable and have their own unique telephone numbers. A basic feature of PCS is expected to be the ability to communicate person-to- person, rather than station-to-station. 3. We take this action to foster rapid creation of a competitive market to deliver these new mobile digital voice and data services to the American public. Personal communications needs are changing rapidly as our society becomes more mobile and people demand rapid communications no matter where they are or what time it is. A competitive market is the best way to introduce broadband PCS to help meet these demands. We expect that PCS will provide a variety of mobile services competitive with existing cellular, paging and other land mobile services as well as new services offering communications capabilities not currently available. These services will be provided on an entire family of new communications devices that will include small, lightweight multi-function portable phones, portable facsimile and other imaging devices, new types of multi-channel cordless phones, and advanced paging devices with two-way data capabilities. We expect that these new services and devices will affect the future development and configuration of all telecommunications networks by significantly improving their flexibility and increasing the number of functions they can perform. 4. We are amending the broadband PCS spectrum allocation and regulatory structure to better achieve what have been and continue to be our four primary goals in this proceeding: competitive delivery, a diverse array of services, rapid deployment, and wide- area coverage. Furthermore, our PCS rules as modified will partner with our competitive bidding procedures to meet Congressional objectives that include promoting economic growth and competition, enhancing widespread access to telecommunications service offerings, and ensuring that PCS licenses are disseminated to a wide variety of applicants. 5. The actions we take are designed to enable PCS providers to compete effectively with each other and with other wireless providers so that the American public can enjoy the greatest benefit from the delivery of these new services. To promote competitive delivery, we have modified the band plan to ensure there is an opportunity for a sufficient number of competitors to offer PCS services. Further, providers will have the flexibility to determine the amount of spectrum needed for their particular service or services. However, we have also set limits on the total amount of spectrum that can be acquired by new entrants and by incumbent cellular providers. This ensures that there will be a significant number of competitors in each area. 6. We have purposely adopted a broad definition of PCS to encourage a variety of firms with their own visions of PCS to bid for various combinations of licenses and to provide a diverse array of new services. Firms will compete not only on price, but also on quality and the types of new products and services they offer. We have allocated spectrum both in different sized blocks and in different sized service areas because we want to encourage businesses to be able to acquire the spectrum and service areas that best suit their business plans. This additional flexibility will result in a greater diversity of products and services for consumers. 7. Rapid deployment is important so that consumers do not have to wait for the benefits of the new services. To ensure rapid deployment, we have allocated two different sized spectrum blocks, which can be aggregated to form other block sizes. We have also altered the allocation of some of the PCS spectrum to reduce the cost of moving microwave incumbents that must be relocated. Both of these decisions will allow more rapid introduction of service because of the reduced costs of microwave relocation. 8. The revised band plan also will reduce the cost of service and equipment to consumers. In addition, we have increased the power level available for PCS service. Together with our decisions to license some BTAs and 10 MHz blocks, these changes will make PCS service more viable in rural areas, help ensure wide-area coverage and increase access for all Americans. 9. Many of the actions we take today are directed toward ensuring that a wide variety of applicants have an opportunity to acquire PCS licenses. In addition to providing for different spectrum blocks and geographic areas, we are modifying our ownership rules to encourage participation in PCS by rural telephone companies, small businesses and businesses owned by minorities and women. 10. The most significant of the changes that we adopt today involves modification of the band plan that was adopted in the Second Report and Order. In that Order, we allocated 120 MHz of spectrum to PCS, some of which was in the lower portion of the 2 GHz band allocated for emerging technologies and some of which was in the upper portion of that band. Under our revised plan, all of the 120 MHz of spectrum allocated to PCS is located in the lower band. The previous band plan would have required those who wished to operate in both the upper and lower bands to utilize more expensive dual mode handsets capable of operating on both bands. Providing PCS licenses in only the 1850-1990 MHz band will lower costs to consumers by permitting use of a single-band handset. Reducing the costs of equipment to consumers should also increase consumer demand and strengthen the economic viability of the PCS providers. Placing all the licensed and unlicensed spectrum in a single contiguous band also will decrease the cost of handsets that can operate in both licensed and unlicensed blocks. In addition, these changes will preserve spectrum in the upper band that is allocated internationally for the emerging Mobile Satellite Services (MSS) industry to provide worldwide service. Taken together, these changes will increase the competitiveness of PCS service providers in urban, suburban, and rural areas which should lower prices and stimulate demand, thereby increasing investment and economic growth. Lower prices will also enhance consumer access to PCS services. 11. Having all blocks in a single contiguous band also will increase the value of the 10 MHz blocks. These blocks would have been less desirable in the upper band because upper band equipment is expected to be available from manufacturers twelve or more months after lower band equipment. In addition, the upper band contains a higher concentration of microwave facilities that would have had to share spectrum with broadband PCS licensees or be relocated from the broadband PCS spectrum to avoid interference. Our action avoids the expense and potential delay associated with relocating the numerous microwave links currently operating in the upper band. The change we have made to the band plan also makes it more feasible to aggregate a 10 MHz block with a 30 MHz block for a total of 40 MHz. Taken together, these factors will reduce the time and the cost of PCS providers offering their services to the American public. The overall allocation of 120 MHz for broadband PCS remains unchanged. 12. In the Second Report and Order, we divided 120 MHz of spectrum into seven blocks: two 30 MHz blocks, one 20 MHz block, and four 10 MHz blocks. In this Order, we are amending our band plan to provide six blocks: three 30 MHz blocks and three 10 MHz blocks. We changed the 20 MHz block to a 30 MHz block and eliminated one 10 MHz block primarily because we were persuaded that a single 20 MHz block would not provide enough spectrum to support a viable competitor to the 30 MHz PCS MTA licensees, or to the two existing cellular licensees currently serving most areas. As a primary goal of our proceeding was to promote competitive delivery of PCS services, we believe that it is essential to make available an additional 30 MHz block. We anticipate that the three 10 MHz blocks will be used in a variety of ways that may include "niche services" and other functions, or as an enhancement for PCS or cellular providers that choose to purchase a 10 MHz block to complement a 30 MHz or 25 MHz block, respectively. Thus, our revised band plan provides for an additional competitor to cellular service and to the other PCS providers, while also providing three 10 MHz blocks for multiple uses. 13. In addition to modifying our band plan, we also make significant amendments to the rules relating to participation in PCS by holders of cellular interests. In the Second Report and Order, we recognized that unfettered participation in PCS by cellular operators could lessen the potential competition that could develop between PCS and cellular systems. At the same time, we recognized that cellular licensees could foster rapid development of PCS for a variety of reasons, including their expertise with commercial mobile radio services. Promoting competition and providing for rapid deployment of PCS are both among the objectives that Congress instructed us to promote in Section 309(j) of the Communications Act, as amended by the Reconciliation Act. We have balanced those competing interests by allowing entities with a 20 or more percent investment interest in a cellular license to acquire a 10 MHz PCS license in the same area. We adhere to that decision. However, we have decided that as of January 1, 2000, we will afford cellular operators the same overall 40 MHz spectrum cap as other PCS operators, and allow them to acquire an additional 5 MHz for a total of 15 MHz of PCS spectrum in the same service areas as their cellular interests. 14. In Section 309(j), Congress also directed us to promote economic opportunity by disseminating licenses to a wide variety of applicants, including small businesses, rural telephone companies, and businesses owned by members of minority groups and women ("designated entities"). We are modifying our PCS cellular eligibility rules to promote that goal as well. Specifically, we are relaxing our cellular ownership attribution rules to allow designated entities with up to a 40 percent non-controlling interest in a cellular license to obtain a PCS license in the same area. One effect of this change will be to allow some rural telephone companies with non-controlling cellular interests, to provide PCS service in areas that might otherwise not be served in a timely manner. 15. We also are relaxing our cellular attribution rules to allow any entity with up to a 40 percent non-controlling ownership interest in a cellular license covering 10 percent or more of the population in a PCS service area to also attain a non-controlling, investment interest in a PCS license held by a business owned by minorities or women. While there is some risk that relaxing the cellular eligibility rule will limit the vigor of competition in some markets, we think that risk is sufficiently limited where the party holding interests in two licenses holds a minority interest in the cellular license and the PCS license is controlled by another entity. We have concluded that we should take that risk in order to advance the goal of promoting economic opportunity for these groups. 16. Our cellular eligibility rules balance the goals that Congress has established -- promoting competition, ensuring rapid deployment of PCS, and providing economic opportunity for designated entities. We have decided that limited participation by cellular providers will serve the public interest by promoting rapid deployment of PCS, participation by designated entities, and overall competition. 17. We have made a number of minor modifications to our rules. With these changes, we intend to proceed expeditiously toward licensing providers of broadband personal communications services. The following is a summary of all of the specific actions we take today to promote the goals outlined above: a. Adopting a band plan that provides for three 30 MHz licenses (Blocks A, B, and C) and three 10 MHz licenses (Blocks D, E, and F), all of which are within the 1850-1990 MHz band; b. Providing that the A and B Blocks be licensed within 51 service areas based on the Major Trading Areas (MTAs) and that the C, D, E, and F Blocks be licensed within 493 smaller service areas based on the Basic Trading Areas (BTAs) set forth in the Rand McNally Commercial Atlas & Marketing Guide (123rd ed. 1992); c. Maintaining the allocation of spectrum at 1910-1930 MHz for unlicensed PCS devices, and committing to initiate a proceeding in the near future to examine allocation of additional spectrum for unlicensed PCS operations. Within this band, we have adopted a 1.25 MHz channelization scheme for isochronous (voice) devices and eliminated channelization requirements for asynchronous (data) devices; d. Continuing to permit all eligible entities to acquire spectrum up to a cap of 40 MHz; e. Retaining our five percent equity attribution threshold for PCS licenses so that the same entity may not own more than five percent of PCS licenses constituting more than 40 MHz within the same area; f. Retaining our cellular attribution threshold of 20 percent equity ownership of a cellular licensee and our service area overlap test of 10 percent of the population of the relevant PCS market, so that the same entity generally may not own more than 20 percent of the cellular license and more than 5 percent of PCS license(s) that would place the entity above the spectrum limit in an overlapping service area; g. Relaxing the eligibility rules to permit entities with attributable interests in cellular companies whose combined cellular geographic service areas overlap between 10 and 20 percent of the PCS service area population to submit bids for more than 10 MHz of PCS spectrum provided that, prior to the auction, they commit to divest themselves of sufficient cellular interests to come into compliance with our eligibility rules within 90 days of license grant; h. Providing that voting stock, general partnership interests, interlocking directorates and certain other controlling interests and relationships will be considered in determining attributable interests under our spectrum caps; i. Raising from a 20 percent to a 40 percent non-controlling interest the threshold for determining attributable cellular equity ownership for rural telephone companies, small businesses and businesses owned by minorities and women which are collectively termed "designated entities" under 47 U.S.C. 309(j); j. Increasing from a 20 percent to a 40 percent non-controlling interest the threshold for determining attributable cellular equity ownership to allow non- designated entities to make non-controlling investments in PCS licenses owned and controlled by minority- and women- owned businesses; k. Permitting entities with attributable cellular interests covering 10 or more percent of the population in a PCS service area to acquire 10 MHz of PCS spectrum within the PCS service area and, after January 1, 2000, to acquire an additional 5 MHz for a total of 15 MHz of PCS spectrum in their cellular service areas; l. Relaxing construction requirements to provide that (a) 30 MHz broadband PCS licensees must provide coverage to one-third of their service area population within five years of initial licensing and two-thirds within ten years and (b) 10 MHz licensees must provide coverage to twenty five percent of their service area population within five years of initial licensing or, submit a showing of equivalent or substantial service; m. Increasing the maximum power level permitted for broadband PCS base stations to 1640 watts equivalent isotropically radiated power (e.i.r.p.), which is equivalent to 1000 watts effective radiated power (e.r.p.); n. Retaining with minor amendment rules ensuring compliance with minimum standards for exposure to radio frequency (RF) energy emitted by PCS devices; o. Committing to initiate a proceeding in the near future to allocate additional spectrum for mobile satellite services (MSS) and to work toward having additional spectrum allocated to MSS at the World Radio Conference to be held in 1995 (WRC- 95); and p. Pledging to examine management contracts and spectrum leases in the CMRS docket for the purpose of determining whether other interests in PCS licenses should be limited in order to foster vigorous competition. II. BACKGROUND 18. The Commission began its investigation of broadband PCS in 1989. Since then the Commission has addressed broadband PCS in this docket by issuing a Notice of Inquiry, holding an En Banc meeting, and adopting a Policy Statement and Order, a Notice of Proposed Rule Making and Tentative Decision, and a Second Report and Order; and held a Public Forum on broadband PCS. We have also allocated 220 MHz of spectrum between 1850 and 2200 MHz for emerging technologies that include PCS; provided for band sharing or negotiated relocation of microwave facilities occupying 2 GHz PCS spectrum; provided spectrum to accommodate the existing 2 GHz facilities that relocated; and adopted technical, licensing and auction rules for narrowband PCS. We also considered 50 pioneer's preference requests related to broadband PCS. Finally, the Commission made recommendations and participated in an international allocation conference at which decisions were made that recognize and permit use of 2 GHz spectrum for PCS. Numerous telecommunications companies and associations have actively participated in our PCS proceedings, and over 100 companies have applied for and received more than 220 experimental licenses to develop and test PCS services and technologies. 19. On August 10, 1993, the President signed the Omnibus Budget Reconciliation Act of 1993 (Reconciliation Act), which amended Sections 3(n), 309(j) and 332 of the Communications Act of 1934, as amended (Communications Act). Section 309(j) for the first time authorized the Commission to select licensees by competitive bidding and establishes objectives for the bidding process, including rapid deployment of new technologies, promotion of economic opportunity, competition and public access, wide dissemination of licenses, and efficient use of the spectrum. The Reconciliation Act also amended Sections 3(n) and 332 to provide that PCS is a mobile service and to establish a new framework for regulatory treatment of mobile services. 20. On September 23, 1993, shortly after the Reconciliation Act was enacted, the Commission adopted the Second Report and Order establishing regulations and policies for broadband PCS that are under review here. In the Second Report and Order, the Commission enumerated goals of competitive delivery, diversity of services, speed of deployment, and wide-area service. The Commission took a number of actions to help meet these goals. Specifically, the Commission: a. Defined PCS as "radio communications that encompass mobile and ancillary fixed communication that provide services to individuals and businesses and can be integrated with a variety of competing networks"; b. Allocated spectrum at 2 GHz for PCS, including 120 MHz of spectrum for licensed broadband PCS and 40 MHz for unlicensed PCS devices; c. Provided for two 30 MHz licenses and one 20 MHz license in the "lower" band of the emerging technologies spectrum, and four 10 MHz licenses in the "upper" band, in each geographic area; d. Provided that the two 30 MHz licenses would be authorized within 51 service areas based on the Rand McNally Major Trading Areas (MTAs) and that the 20 MHz and 10 MHz licenses would be authorized within 492 service areas based on the Rand McNally Basic Trading Areas (BTAs); e. Established eligibility requirements that limit entities with certain cellular interests to 10 MHz of PCS spectrum where there is significant overlap between a PCS service area and the cellular service area (i.e., 10 percent or more of the PCS service area population); f. Limited broadband PCS licensees to 40 MHz of spectrum, and established certain licensing and renewal mechanisms; g. Established a maximum power level of 100 watts e.i.r.p. for PCS base stations, and adopted technical specifications to avoid harmful interference to other operations while leaving maximum technical flexibility to permit development of new technologies; h. Adopted rules to minimize radio frequency (RF) exposure risk; and i. Noted an intent to continue participating in international efforts to provide standards and consistent spectrum allocations for international deployment of worldwide terrestrial mobile and global satellite services. 21. In related proceedings, the Commission provided a transition plan to govern PCS licensees sharing their authorized spectrum with existing 2 GHz fixed microwave facilities or relocating those facilities to other spectrum; determined that broadband PCS presumptively will be classified as a commercial mobile radio service under Section 332 of the Communications Act as amended by the Reconciliation Act; and found that broadband PCS is within the Commission's competitive bidding authority, when it adopted generic competitive bidding rules and procedures. With regard to competitive bidding for broadband PCS licenses, the Commission proposed to set aside two blocks of spectrum -- the 20 MHz block (Block C) and a 10 MHz block (Block D) -- that would be reserved for bidding purposes to "designated entities", (small businesses, rural telephone companies and businesses owned by members of minority groups and women), and proposed other measures to ensure economic opportunity for designated entities. These proposals remain pending. The proposed set-aside and other outstanding issues concerning broadband PCS auctions will be decided in a forthcoming Order (in PP Docket No. 93-253) addressing competitive bidding rules. 22. In response to the Second Report and Order, 67 parties filed petitions requesting reconsideration or clarification. Of the 67 petitions, 58 primarily address issues relating to licensed PCS services and 9 primarily address issues relating to unlicensed PCS operations. The petitioners collectively request reconsideration of the spectrum allocation and frequency block plan, eligibility and attribution matters, construction requirements, technical standards, microwave interference criteria, power limits, radio frequency (RF) hazard requirements, and matters related to unlicensed PCS devices. The Commission received comments addressing the petitions for reconsideration from 44 parties and replies from 54 parties. 23. On March 17, 1994, the Commission established an intra-agency task force to coordinate the reconsideration of PCS policies and rules. On April 11 and 12, 1994, the task force conducted a series of public panel discussions on PCS issues. The panelists included potential PCS service providers, technical experts, members of the financial community, economists and representatives of designated entities. The presentations of the panelists and transcripts of the panel discussions were placed in the record of this proceeding, and 30 interested parties filed statements in the record responding to the panel discussions. III. SPECTRUM ISSUES AND SERVICE AREAS A. Allocation, Block Plan and Service Areas. 24. In the Second Report and Order, the Commission allocated 120 MHz for licensed PCS and 40 MHz for unlicensed PCS from the 220 MHz of emerging technologies spectrum. Specifically, (lower band) 1850-1890 MHz and 1930-1970 MHz, and the (upper band) 2130-2150 MHz and 2180-2200 MHz, were allocated for licensed PCS; and the 1890- 1930 MHz band was allocated for unlicensed PCS devices. In addition, 60 MHz remained in reserve for future allocations to emerging technologies such as MSS or other applications. The frequency plan for licensed PCS included two 30 MHz frequency blocks, one 20 MHz block, and four 10 MHz blocks. Service areas were defined based on Rand McNally's "Major Trading Areas" (MTAs) and "Basic Trading Areas" (BTAs). The two 30 MHz blocks were in the lower band and licensed on an MTA basis; the 20 MHz block also was in the lower band, but licensed on a BTA basis; and the four 10 MHz blocks were in the upper band and licensed on a BTA basis. 25. Twenty-eight parties argue for reconsideration of various aspects of the allocation and frequency block plan adopted in the Second Report and Order. In general, the petitioners address: 1) alternatives for the PCS frequency block plan, including the number of PCS providers, PCS service areas, and issues relating to the aggregation or subdivision of PCS spectrum; 2) whether spectrum should be designated for private PCS use; and 3) the impact of the PCS allocation on the international allocations for mobile satellite service (MSS). 26. We are revising the band plan to move the 10 MHz blocks from the upper band to the lower band, increase the size of the 20 MHz block to 30 MHz, and reduce the number of 10 MHz blocks from four to three. The revised band plan is depicted in Appendix D, "Broadband PCS Band Plan," and detailed in the following table. Frequency Block Amount of Spectrum Geographic Scope Frequency Range A 30 MHz MTA 1850-1865/1930-1945 MHz B 30 MHz MTA 1870-1885/1950-1965 MHz C 30 MHz BTA 1895-1910/1975-1990 MHz D 10 MHz BTA 1865-1870/1945-1950 MHz E 10 MHz BTA 1885-1890/1965-1970 MHz F 10 MHz BTA 1890-1895/1970-1975 MHz Unlicensed 20 MHz Nationwide 1910-1930 MHz 27. This plan provides for three large blocks and three small ones. This will allow potential licensees to aggregate varying amounts of spectrum in different geographic areas depending on their individual business plans. The three large 30 MHz blocks ensure that these licensees have sufficient spectrum to begin service rapidly. The three small 10 MHz licenses will allow the provision of services that might not require a full 30 MHz, or for aggregation with a 30 MHz PCS license or an existing cellular license. As noted above, moving the 10 MHz blocks from the upper band to the lower band provides a number of important procompetitive benefits: consumer equipment costs will be significantly lower, costs of relocating incumbent fixed microwave links will be significantly reduced for new PCS entrants, the ability to aggregate spectrum will be increased, and valuable spectrum will be preserved that can be used to provide mobile satellite service on a worldwide basis. This revised plan reduces the amount of spectrum for unlicensed devices, but will increase the ability of new consumer equipment to work on both a licensed and unlicensed basis, increasing the utility of the devices for consumers. The improvement in this band plan will increase competition, lower equipment costs and provide other benefits. As a result, consumers will receive lower-cost and higher-quality service. 1. Block Positioning 28. NYNEX proposes that the number of licenses and size of the frequency blocks be maintained, but that the 20 MHz block be switched to the upper band and that two of the 10 MHz blocks be switched to the lower band and located between the two 30 MHz blocks. NYNEX states that this would facilitate aggregation of up to 40 MHz in the lower band because both 30 MHz MTA blocks would be adjacent to a 10 MHz BTA block. It states that this arrangement of the frequency blocks would be especially helpful to cellular licensees who are limited to 10 MHz in-market, but can aggregate up to 40 MHz out-of-market. NYNEX states that this approach would allow a cellular carrier to purchase licenses only in the lower PCS band so that its customers would not need handsets that operate in both the upper and lower bands. NYNEX states that, while it is possible to design equipment that can work in both the lower and upper PCS bands and the cellular bands, such "interoperable" handsets would result in increased equipment cost, size, weight, and power consumption. 29. INS proposes two 30 MHz and two 10 MHz blocks in the lower band and one 30 MHz and one 10 MHz block in the upper band. It states that this plan would increase the opportunity for designated entities to aggregate 40 MHz because the current frequency plan encourages designated entities to bid on three different blocks (one 20 MHz and two 10 MHz blocks). INS agrees with NYNEX that use of spectrum in both bands would result in higher per unit capital costs and indicates that this is of particular importance to small businesses. 30. Bell Atlantic states that six 20 MHz blocks would eliminate the need for costly and inefficient aggregation of licenses between the lower and upper frequency bands. CTIA states that the plan adopted in the Second Report and Order will force licensees in the lower band to aggregate with the 10 MHz frequency blocks in the upper band if their systems require more than 20 or 30 MHz and contends that this approach requires complex and expensive equipment capable of operating in both bands. 31. MSS providers argue that the location of the PCS allocations located in the upper band spectrum nullifies the International Agreement on Global MSS allocations. They propose combining all 120 MHz of licensed PCS in a single block below 2 GHz. 32. Motorola discussed a plan to move all of the PCS spectrum to the lower band in ex parte presentations. They note that their plan gives the Commission the flexibility to allocate three 30 MHz and three 10 MHz licenses in the lower band. Motorola argues that bidders would be able to aggregate licenses without the need for dual band equipment. 33. A number of parties filed comments and ex parte presentations which also discuss the benefits of placing all of the licensed PCS spectrum in a contiguous band. These benefits include lower equipment costs and lower microwave relocation costs. In addition, some stress the increased ability of a provider to have spectrum in the same band in different service areas to provide competitive service. Other parties discuss the desirability of having 10 and 30 MHz blocks in the same band as the 30 MHz blocks to facilitate aggregation. 34. Decision. We initially authorized 10 MHz blocks in the upper PCS band. Many parties, however, argue that the upper band blocks would be of little value in the near term because equipment would not be developed for this spectrum for a year or more. In addition, handsets that can bridge the upper and lower bands are predicted to cost about 25 percent more and to be bulkier than handsets operating only on the lower frequencies. In addition, dual mode handsets would be heavier and have shorter battery life. Several parties argued that dual band handsets were essential to the success of upper band service because PCS operators would be likely to aggregate upper and lower band spectrum and consumers would want to be able to receive service on both bands, both to permit roaming across geographic areas and to facilitate changing service providers. These parties contended that the higher costs, delay, and other limitations associated with the upper band presented serious impediments to achieving our goals of fostering a competitive market, rapid deployment, opportunities for designated entities, and fostering a wide diversity of services. Upon reconsideration, we conclude that MSS and PCS services can both be accommodated by using only lower band spectrum for licensed and unlicensed PCS services. 35. Moving licensed PCS from the upper band to the lower band provides a number of procompetitive benefits. First, the cost of interoperability between licensed and unlicensed PCS will be reduced. As noted above, equipment costs to consumers are predicted to be reduced by 25 percent. Moreover, under the revised plan, manufacturers will concentrate on a single band with uniform frequency spacing, which should result in greater economies of scale in manufacturing that reduce consumer equipment prices. This additional cost for interoperability between bands was not evident to us when we made our earlier decision. Increased interoperability has the additional benefit of reducing lock-in costs for consumers, giving them greater ability to switch providers, and thereby resulting in a more competitive market. Because of the less expensive handsets and the ability to combine adjacent blocks, aggregation is much more desirable. This will benefit all new providers, including designated entities, because they will be able to reduce costs and compete more effectively. Furthermore, there appear to be a number of different potential uses for the 10 MHz blocks: innovative niche services that are unlikely to be provided initially on the 30 MHz blocks, aggregation with the 30 MHz blocks, aggregation with other 10 MHz blocks, service extensions for incumbent cellular providers, and opportunities for designated entities to provide service with lower capital cost. Moving the 10 MHz blocks from the upper band to the lower band will enhance the value of some, if not all, of these uses and allow licensees to decide the most valuable use for the spectrum. 36. Second, the cost and time required to relocate incumbent fixed microwave links should be significantly less in the lower band because the number of microwave links in the upper band is higher than the number in the lower band. While the bandwidth used by the upper band microwave incumbents is much less, making it easier to find some clear spectrum immediately, the ultimate requirement to clear the spectrum would result in significantly higher costs for PCS licensees. 37. Third, equipment should be available for the lower band at an earlier date. Manufacturers have spent significant time and resources developing lower band equipment but the record indicates that they have not done much work on developing equipment for the upper band. As a result, some parties assert that the availability of upper band equipment trails the availability of lower band equipment by about one year. Time to market is a critical factor in the rollout of PCS services that will compete against existing cellular and enhanced specialized mobile radio (ESMR) entities. Thus, earlier equipment availability is a significant factor in developing a competitive PCS service. 38. Fourth, many cellular companies have expressed a desire to operate PCS systems both outside and inside their current cellular service areas. By moving the PCS spectrum to the lower band, PCS and cellular providers will have the ability to provide service over a large geographic area even though they desire (or are required) to have different amounts of PCS spectrum in different areas. This capability could lower costs to the benefit of consumers because cellular companies will be able to compete using PCS spectrum inside and outside of their service areas. 39. Finally, as we discuss infra, moving all the PCS spectrum to the lower band will better meet the needs of the emerging MSS industry. We also believe that this action will increase the value of the unlicensed spectrum because interoperability with licensed PCS will increase. 40. Accordingly, we find that moving all of the PCS spectrum to the lower band will increase competition, reduce both consumer equipment and system costs, and increase equipment functionality. This new band plan has significant industry support, as evidenced by numerous recent filings submitted in the record by a variety of interests supporting Motorola's proposal to move all of the PCS spectrum to the lower band. 2. Block Size 41. In developing our original plan, we concluded that 10 MHz blocks could support viable and competitive PCS services through the use of advanced digital techniques, such as Code Division Multiple Access (CDMA) and Time Division Multiple Access (TDMA), and microcellular technology. We also stated that some types of PCS operations would require more than 10 MHz of spectrum. In addition, we recognized that initially PCS is required to share spectrum with fixed microwave operations and therefore the full amount of spectrum will not be available initially in many locations. We concluded that 20 and 30 MHz frequency blocks were needed to support the rapid development and implementation of the fullest range of PCS services. We also permitted most licensees to aggregate up to 40 MHz of broadband PCS spectrum in each service area, except that cellular licensees were limited to 10 MHz where their cellular geographic service area (CGSA) overlapped with the PCS service area. For these reasons, we concluded that the combination of 10, 20, and 30 MHz licenses would allow users to acquire the amount of spectrum appropriate for their applications. 42. In its petition, Time Warner requests that we allocate 40 MHz per PCS license. Time Warner argues that 40 MHz blocks are needed to share the PCS frequencies with fixed users and that allowing aggregation does not adequately remedy the problems caused by licensing blocks smaller than 40 MHz. Time Warner states that under current PCS rules, the only way for a licensee to aggregate 40 MHz is to aggregate across the lower and upper bands, which would necessitate the use of subscriber equipment that is larger and more expensive. Alternatively, INS proposes that we divide the PCS spectrum into three 30 MHz and three 10 MHz blocks, arguing that this facilitates aggregation of spectrum without crossing between the bands and will enable designated entities to obtain a 30 MHz block in the lower band. 43. Several parties express support for alternative plans based on blocks of equal size. Bell Atlantic, BellSouth, Florida Cellular, Point, and TDS urge that we allocate six 20 MHz blocks (four 20 MHz blocks in the lower band and two 20 MHz blocks in the upper band). Bell Atlantic states that the net efficiency and capacity gain in moving from four 10 MHz to four 20 MHz blocks greatly outweighs the slight efficiency loss from reducing the two 30 MHz allocations to 20 MHz. Florida Cellular states that equal-sized blocks would provide a "more equitable playing field" for small businesses. Other commenters, especially smaller companies and associations representing the interests of smaller groups, support the principle that competition will be increased if we allocate blocks of equal size. 44. Point submits that a 20 MHz block is more than enough spectrum to create a viable PCS service, arguing that digital technology permits a provider with 20 MHz to serve the entire population in all but the very largest markets. It argues that in a marketplace comprised of two cellular carriers, one wide-area specialized mobile radio (SMR) carrier, and from two to six viable PCS carriers, no single carrier could expect to achieve more than a 30 percent market share. Point concludes that a 20 MHz block is more than sufficient to serve 30 percent of the total population even in the largest markets. 45. CTIA and Nextel propose four 20 MHz blocks in the lower band and four 10 MHz blocks in the upper band. CTIA and Nextel argue that digital technology offers unprecedented customer capacity and that the record does not identify any PCS service requiring as much as a 30 MHz block. Nextel states that 10 and 20 MHz blocks are sufficient to permit engineering around unrelocated microwave systems while encouraging the use of spectrally-efficient technologies. Additionally, CTIA states that 30 MHz blocks make coordination with microwave incumbents more difficult than the 20 MHz blocks because incumbent microwave users generally have 20 MHz channels. 46. PacBell urges that we reduce the number of blocks (and PCS licensees). In particular, PacBell argues that, given two established cellular providers and one SMR competitor, a maximum of three new PCS providers would be viable even in the largest metropolitan areas. 47. AMT/DSST, in joint comments, submit that the adopted frequency plan should not be altered. AMT/DSST argue that the petitioners reflect no consensus on the appropriate direction to be taken by the Commission on reconsideration. They state that the 10 MHz licenses will facilitate the provision of specialized or "niche" applications and that such specialized applications and services will not be offered by PCS providers operating on the larger blocks and expecting to compete with incumbent cellular providers. AMT/DSST also state that the two 30 MHz blocks will foster the rapid introduction of PCS services with system capacities comparable to cellular system capacities. In the view of AMT/DSST, the current plan represents a "reasoned balancing of the regulatory, policy and technical considerations that have received a full airing in this Docket." 48. GCI states that, while it would have preferred fewer blocks, each with a greater amount of spectrum, the current frequency plan should not be revised. It states that the diversity of arguments for different block sizes demonstrates that a diversity of services may result from the allocation of spectrum blocks of varying size. Further, GCI believes that cellular providers will combine 10 MHz of PCS spectrum with their existing allocation of 25 MHz. GCI therefore believes it important to provide PCS licensees with 30 MHz so that new entrants can compete with cellular providers. 49. A number of responding parties argue strongly that the current plan should not be amended to eliminate 30 MHz blocks in favor of smaller blocks. For example, APC states that the 30 MHz blocks are necessary to permit licensees to share spectrum with microwave users, to enable PCS to compete with the wired local loop, and to facilitate the provision of high-speed data broadband and information services. APC believes that entities favoring smaller spectrum blocks hope to place PCS providers at a competitive disadvantage to cellular and wide-area SMR operations. PCS Action similarly argues that large spectrum blocks and geographic areas will enable independent PCS operators to be competitive sooner with the existing mobile communications providers. US West believes that 30 MHz is necessary to support new entrants. MCI submits that smaller blocks would increase the costs and delays associated with the development of a broadband wide area PCS system. MCI believes that smaller blocks would be inefficient and would require new entrants to resort to the secondary market to obtain the spectrum necessary to compete with other mobile communications providers. 50. Bell Atlantic, CTIA, Nextel, and Sprint oppose Time Warner's proposal for 40 MHz blocks, arguing that such a large amount of spectrum would permit too much concentration of control and discourage participation by designated entities, who will tend to be smaller than other PCS providers. 51. At the PCS Public Forum held on April 11 and 12, 1994, and in comments filed in response to those discussions, many of the parties supported 30 MHz blocks. For example, Mark Roberts of Alex Brown & Co. stated that PCS entrants will need large blocks of spectrum to be able to compete efficiently and to operate with a cost structure similar to that of cellular providers that already have 25 MHz. He further argued that license sizes of less than 30 MHz would be likely to lock in premium returns for the cellular industry. Paul Rissman of Alliance Capital stated that the financial community would be interested in PCS only if large spectrum blocks are created. Daniel Kelley of Hatfield & Associates stated that, given the spectrum clearing problems, 30 MHz would be about the minimum amount of spectrum needed for a PCS provider to compete with incumbent cellular providers. Other participants at the public meeting, including George Murray, Dr. Charles Jackson, and Dr. Jerry Hausman, expressed the view that 20 MHz blocks would be sufficient for the provision of PCS service and that by allocating 20 MHz blocks the Commission could facilitate aggregation to 40 MHz if some providers felt that was necessary. 52. Decision. In the Second Report and Order, we allocated two 30 MHz blocks, one 20 MHz block and four 10 MHz blocks. Our intent was to encourage participation of as many viable new PCS entrants as possible while maintaining sufficient spectrum to ensure the viability of both MSS and unlicensed devices. Based on the reasoning presented below, and on information provided by the petitioners and other responding parties, including presentations made by industry experts at our panel discussions, we find that our goals will be better served by two modifications to the band plan: (a) an increase in the size of the 20 MHz block to 30 MHz; and (b) a reduction in the number of 10 MHz blocks from four to three. Overall, the total amount of spectrum allocated for licensed PCS remains unchanged. 53. One of our goals in this proceeding is to stimulate competition in the wireless and wireline industries, thus reducing costs and improving quality for consumers. In so doing, we must balance two objectives. First, we want to maximize the number of opportunities for new viable competitors to emerge. We also want to allow market forces to guide how many competitors survive. We have endeavored to provide as many opportunities as possible to aggregate blocks into viable service offerings to ensure that several strong competitors emerge to provide service. Our desire to maximize competition must be tempered, however, because 1) spectrum is limited and 2) for new entrants to be viable we must provide sufficient spectrum to begin service quickly with reasonable upfront capital costs. We believe that the combination of microwave incumbents occupying part of this spectrum and economies of scale lead to the conclusion that the a set of three 30 MHz blocks will support the rapid introduction of competitive PCS services whereas 20 MHz blocks could lead to PCS service start-up delays or a reduction in the number of viable competitors. 54. We believe that our new band plan is superior to uniform 20 MHz blocks, as advocated by Bell Atlantic, BellSouth, Florida Cellular, Point and TDS. The combination of three 30 MHz blocks and three 10 MHz blocks allows the aggregation of a variety of license sizes that could not occur with uniform 20 MHz blocks. As a result, we find that the allocation of six 20 MHz blocks would not provide as many benefits as either the allocation adopted in the Second Report and Order on the modified plan we adopt in this order and it might lead to fewer new service providers with sufficient spectrum to provide service quickly. We also reject the plan of twelve 10 MHz blocks proposed by Murray, because such an arrangement might seriously delay the implementation of PCS, since the process of aggregating so many spectrum blocks could be time consuming and costly. It also could dramatically increase complexity and transaction costs at and after the auction. Finally, we believe that dividing the spectrum into 40 MHz blocks as requested by Time Warner would be inefficient for many applications and would foreclose innovative niche services. 55. The record indicates significant concern that a 20 MHz block may not provide sufficient spectrum to enable a PCS provider to compete effectively with other PCS licensees operating on 30 MHz spectrum blocks or with other commercial mobile radio service providers. Some parties argue that 20 MHz will provide sufficient capacity in the long run. However, APC argues that with only 20 MHz, there could be a significantly larger portion of each service area where the licensee has no usable spectrum due to the presence of microwave incumbents. The presence of fixed microwave links requires that, on the average, a licensee with 20 MHz initially will have to relocate more microwave links than a 30 MHz license before PCS service can begin, which could significantly delay the commencement of service and increase the upfront cost of initiating service. In addition, APC states that the ability of a microwave incumbent to delay or extract a premium for relocating its link because its microwave path fully blocks service diminishes significantly with a 30 MHz spectrum block. While incumbent microwave links are 20 MHz wide, we feel that the advantages of being able to work around specific links with a 30 MHz block outweigh the additional transaction costs which result from not matching the incumbent fixed microwave assignments identically. 56. Other parties support the notion that a 30 MHz block will help new PCS entrants compete more effectively with existing wireless and wireline providers. We also believe that limiting one licensee to 20 MHz could be a disadvantage for future competition. The ability to provide a complete package of mobile voice and data services could become a significant competitive advantage in the future. Such a package of wireless services, however, may require more than 20 MHz of spectrum. Other services may require less spectrum and are better suited to the 10 MHz blocks. 57. Due in large part to these concerns, the investment community has stated that financing would be much more difficult to obtain for the licensees on the 20 MHz block than on the other blocks. These handicaps are of particular concern to us because the 20 MHz block was proposed to be reserved for designated entities. The competitive handicaps of a 20 MHz block relative to 30 MHz blocks would not have served our goal of providing a viable competitive opportunity for designated entities. 58. Increasing the third license from a 20 MHz block to a 30 MHz block appears to eliminate any competitive disadvantages stemming from the band plan. The A, B and C blocks each will have a roughly equivalent portion of its service area completely blocked by incumbent microwave users in any geographic area. As a result, the costs and delay due to incumbent relocation should be similar on each of the blocks. This change should also reduce the difficulty faced by the C block licensee in obtaining financing. We conclude, therefore, that three equal sized 30 MHz blocks will facilitate competition and the rapid development and implementation of the fullest range of PCS services and ensure that PCS is more fully competitive with other mobile radio services. Accordingly, we are changing the single 20 MHz license to a 30 MHz license. 59. Time Warner petitioned us to allocate 40 MHz blocks in order to promote rapid introduction of service and to enhance the ability a wide range of services in competition with existing wireless and wireline providers. While we believe that some new entrants may need to acquire 40 MHz to fully realize their business plans, requiring all applicants to purchase 40 MHz in all areas would not serve our goal of giving potential licensees the ability to determine the amount of spectrum they need for particular services, nor would it maximize competition. Companies that desire to provide service using 40 MHz can do so through aggregation at the auction or afterwards. Providing a combination of 30 MHz and 10 licenses MHz provides the benefits of 40 MHz licenses, without restricting the options of firms nor affecting competition. 60. Consistent with our decision to formulate a flexible definition of PCS, we allocated four 10 MHz blocks in the Second Report and Order that could serve a variety of needs. We continue to believe that 10 MHz blocks, both on their own and in combination with the 30 MHz blocks or with each other, are useful to support a variety of PCS services. Throughout this proceeding, several parties have indicated that 10 MHz blocks would be suitable for providing services ranging from specialized or "niche" applications to services comparable to those now provided by cellular systems. In addition, the 10 MHz blocks will be beneficial both for cellular licensees, who have limited eligibility for PCS participation in region, and possibly also for augmenting SMR. Finally, commenters discussed the desire to aggregate the 10 MHz blocks with the larger blocks in order to increase capacity for PCS services in heavy demand areas. 61. For these reasons, we believe the public interest is best served by continuing the allocation of licenses on 10 MHz channel blocks in addition to the 30 MHz licenses. We must limit the number of 10 MHz blocks to three for any given area, however. We are constrained because we also want to reserve spectrum for other uses such as MSS and unlicensed PCS. Allowing the flexibility to aggregate spectrum blocks of different size will help ensure that efficient providers succeed. We believe that 120 MHz will provide sufficient spectrum to promote competition rapidly and that flexibility in the provision of service will provide incentives for efficient use of the spectrum. 62. In sum, we believe that a band plan that provides for three 30 MHz licenses and three 10 MHz licenses, all in the lower band, compared to our earlier plan, will better ensure that PCS services are available promptly and competitively to the American public. 3. Aggregation and Disaggregation 63. A number of petitioners request clarification of, or changes to, our policies regarding the aggregation or subdivision of PCS spectrum and PCS service areas. In the Second Report and Order, we limited any party's ability to aggregate PCs spectrum to an attributable interest in 40 MHz. Companies that were deemed to hold attributable interests in cellular license(s) covering 10 percent or more of the population in a PCS service area were limited to holding a single 10 MHz PCS license in that area. We did not address the issue of whether we would allow disaggregation of spectrum. 64. Comcast requests clarification that the 40 MHz aggregation limit applies only to PCS spectrum. PNSC submits that certain PCS licensees should be permitted to aggregate more spectrum than that allowed under the current plan. It recommends that BTA licensees in areas with populations between 200,000 and 999,999 be permitted to aggregate up to 60 MHz and that cellular carriers serving markets with populations of one million or less be permitted to aggregate up to 20 MHz. PNSC further urges that no limit be set on aggregation of spectrum in areas with populations less than 200,000. PNSC questions the viability of seven PCS licensees and states that rural BTA licensees should be permitted to aggregate more spectrum because they are at a competitive disadvantage vis-a-vis MTA licensees. It contends that if we do not raise the aggregation limit, we should adopt a channeling plan that provides for three 30 MHz MTA licenses, with one set-aside for designated entities, and three 10 MHz BTA licenses, with one set-aside for designated entities. 65. PCS Action and Time Warner request that PCS licensees be permitted to aggregate up to 40 MHz of spectrum in the lower band through leasing, joint ventures, consortia, or other means. They contend that this would eliminate the need for licensees to use more expensive equipment capable of operating in both the upper and lower bands. CTIA does not object to the overall 40 MHz limit on PCS ownership. However, it requests that cellular licensees be subject to the 40 MHz limit and that they be allowed to acquire up to 15 MHz of PCS spectrum. Thus, CTIA argues that, in addition to the right to bid on a 10 MHz channel, cellular operators should be permitted to acquire an additional 5 MHz either through bidding and subsequent divestiture or after the auction. BellSouth and Point suggest a uniform 45 MHz aggregation limit that would apply to the total spectrum used by an entity for all the mobile communications services it provides in a given area, including, cellular, SMR, wide-area SMR and PCS. BellSouth argues that the current approach limits cellular providers to an additional 10 MHz of PCS or a total of 35 MHz of spectrum while enhanced SMRs can acquire up to 40 MHz of PCS spectrum or a total of 59 MHz of spectrum. 66. Decision. We believe that the 40 MHz limit for PCS spectrum is appropriate. No new information has been presented to indicate that each licensee in a market would require more than 40 MHz to provide broadband PCS service. Although at least one party argued that this limit should be amended to allow greater aggregation in rural areas, we do not believe that greater aggregation is needed. In particular, the demand in rural areas is expected to be sufficiently low that there should be no need for more than 40 MHz by any one provider. If demand in rural areas is not sufficient to meet than 40 MHz of spectrum to one entity, it would be preferable to have additional competitors serve these customers rather than to license more than 40 MHz of spectrum to one entity. 67. One of our goals in this proceeding is to promote competitive delivery of wireless services. As a result, we feel that not only is an overall cap on PCS spectrum important to prohibit excessive spectrum aggregation, but that a comparable separate limit should be placed on cellular providers since they already hold 25 MHz of clear spectrum and already have a large number of existing wireless customers. To ensure competitive parity, cellular carriers will be subject to an overall spectrum cap of 35 MHz for their combined PCS and cellular spectrum. We are persuaded by the argument, raised by a number of parties, that because of cellular's "headstart" in the wireless telephone market, existing infrastructure and large base of customers, cellular carriers might be able to dominate the wireless market if they receive more than 10 MHz of PCS spectrum. We also recognize that new entrants face a possibly lengthy process to relocate existing microwave users so they can use all of their spectrum. Cellular carriers already have 25 MHz of clear spectrum in operation whereas new entrants may have to relocate microwave users to gain access to that much spectrum, even if they acquire 40 MHz at the auction. In addition, we are concerned that additional spectrum acquired by cellular entities may reduce the amount of spectrum available to new entrants and increase the costs to new entrants. To promote the ability of new entrants to acquire spectrum and rapidly begin service as strong competitors to in-region cellular carriers, we have decided to continue to permit cellular carriers to acquire and hold only a single 10 MHz license in any PCS service area where they are considered in-region. (See Cellular Eligibility section infra). However, because we realize that as competitive PCS offerings are implemented, the market advantages enjoyed by cellular carriers should decrease, we will allow cellular carriers to acquire an additional 5 MHz after January 1, 2000. This will allow cellular carriers to acquire the same total amount of spectrum (40 MHz) as other entities. Limiting in-region cellular carriers to 10 MHz of PCS spectrum for five years will not disadvantage them relative to the new entrants who must contend with microwave relocation over their entire spectrum block(s) and do not necessarily have an established customer base or comparable infrastructure advantages. 68. We reject the contention BellSouth and Point that the aggregation limit be raised to 45 MHz to permit cellular entities to acquire an additional 20 MHz. If we were to allow such aggregation to 45 MHz through the disaggregation of 30 MHz blocks, the number of full service competitors could be reduced to the detriment of realizing the goals we have set forth for PCS. If we were to allow aggregation to 45 MHz through the aggregation of 10 MHz blocks, there would not be enough blocks to assure both full cellular participation and the participation of other parties who desire 10 MHz licenses. We conclude that 40 MHz remains an appropriate limit on PCS spectrum because it protects the competitive structure, provides sufficient spectrum for efficient provision of wireless services, and encourages a wide diversity of firms to participate in the industry. Furthermore, we are seeking comment in another proceeding as to whether and how our aggregation limit may be applied uniformly to all mobile communications providers. We find that extending the PCS spectrum aggregation limit to include other mobile services, such as SMR and wide-area SMR services, is beyond the scope of this proceeding. We therefore intend to address issues relating to spectrum aggregation across other commercial mobile radio services in a separate proceeding. 69. Although, as stated above, we believe spectrum disaggregation should be permitted, we are concerned that initially, there may be anticompetitive incentives to disaggregate spectrum. Two or three entities might purchase a viable 30 MHz license and disaggregate it to reduce the number of new entrants. Thus, we will permit disaggregation of spectrum by any licensee only after it meets the five year construction requirement. The five year point will allow the PCS market to take shape. Entities desiring to use small amounts of spectrum before the prohibition on disaggregation ends can either purchase the 10 MHz blocks of spectrum if they wish to provide service using less than 30 MHz or enter into joint ventures or resale arrangements to facilitate their access to spectrum. We expect to conduct a further proceeding to specify the rules for spectrum disaggregation, which will also explore the possibility of permitting disaggregation for other commercial mobile radio services. 70. We agree with the suggestions of the petitioners and responding parties that PCS entities should eventually be permitted to disaggregate spectrum. We feel that, in the future, disaggregation will complement the three 30 MHz and three 10 MHz channel plan by allowing subdivision of spectrum blocks where service providers find that economic or other conditions warrant it. Allowing spectrum disaggregation, even if it is prohibited until the first construction benchmark, will provide appropriate incentives for service providers to conserve their use of spectrum and to invest in spectrum conserving technologies. Because PCS licensees have paid for the use of the spectrum and have the ability to sell it in the future, they should be especially sensitive to the value of the resource they are using and will be motivated to ensure that it is used in the most valuable way. 71. In determining the appropriate placement of the 10 MHz blocks within the lower band, we seek to promote the development of an efficient market structure and to ensure that no subset of license has any inherent competitive disadvantage due to placement of licenses in the band plan. In particular, we must consider the benefits of aggregating the 30 MHz blocks with the 10 MHz blocks compared to the benefits of aggregating the 10 MHz blocks themselves. Interspersing the 10 MHz blocks between each 30 MHz block facilitates aggregation to 40 MHz by allowing combination of each contiguous 30 MHz and 10 MHz license pair. This also facilitates relocations of the existing fixed microwave operations by matching fixed microwave channels with PCS channels. This will keep to a minimum the number of parties responsible for each relocation which will reduce relocation negotiation, timing and costs. On the other hand, keeping all 10 MHz licenses contiguous would allow more efficient aggregation of these licenses as a substitute strategy for obtaining one of the three 30 MHz block. We conclude that interspersing the 10 MHz licenses between the 30 MHz licenses to permit efficient aggregation up to 40 MHz should the market favor that outcome is the best approach. Recognizing that aggregation of the 10 MHz licenses may be attractive to some parties, however, we are also making two of the 10 MHz licenses contiguous so as to permit this aggregation to 20 MHz, should some parties favor 20 MHz over 30 MHz. (See Cellular Eligibility infra.) 4. Service Areas 72. In the Second Report and Order, we specified that the two 30 MHz blocks would be licensed on an MTA basis. We also specified that the 20 MHz block and four 10 MHz blocks would be licensed on a BTA basis. We adopted this plan to promote the rapid deployment and ubiquitous coverage of PCS and felt that these areas would follow the natural flow of commerce. 73. A number of petitioners request changes in the service areas designated for PCS blocks. Pegasus, for example, requests that the Commission adopt a Mayaguez/Aguadilla- Ponce BTA separate from the San Juan BTA. Pegasus argues that Puerto Rico should comprise two BTAs because the two areas are split geographically by mountains. In addition, DWMP points out that some rural BTAs are larger than a small MTA and that it would be unreasonable to ask a rural PCS provider to meet the construction requirements in these sparsely-populated areas. DWMP requests that we specify smaller service areas. Other parties, such as Killen and NTCA, favor use of the MSA/RSA service areas that are used for cellular licenses. Point Communications states that either BTAs or the cellular MSA/RSA service areas should be used for PCS, arguing that all PCS should be licensed on the same service area basis. CTIA and Nextel suggest that all licensing be based on BTA service areas. Nextel believes that MTA service areas will result in poor build-out and lack of service in rural locations. BellSouth submits that the six 20 MHz blocks it suggested should be licensed on a BTA basis. BellSouth argues that MTAs are inappropriate because they would result in a lack of parity among competitors, and uniform initial spectrum blocks and service areas would encourage competition and give effect to market forces. 74. At the PCS Public Forum held on April 11 and 12, 1994, Dr. C. J. Waylon of GTE submitted that MTA coverage offers large geographic service areas that would enhance competition with existing cellular service providers. Mark Roberts of Alex Brown and Co. also voiced support for the larger MTA service areas. However, some parties, such as George Murray, felt that all blocks should be licensed on a BTA basis to provide an opportunity for small entrants to compete on an equal footing with other PCS providers. 75. Decision. We have decided to retain the geographic license areas definitions for PCS licenses, adopted in our Second Report and Order. We reject the arguments that all licenses should have the same geographic scope, as in NTIA's proposal to use the Department of Commerce Economic Areas. We also reject a re-drawing of the boundaries along cellular MSA/RSA lines as proposed by Killen, NTCA, and Point. 76. We reject the use of cellular MSA/RSA boundaries for a number of reasons. The ten year history of the cellular industry provides evidence generally that these service areas have been too small for the efficient provision of regional or nationwide mobile service. The large transaction costs to aggregate MSAs and RSAs that have been incurred over the past ten years in the cellular industry have frequently been directed towards geographic aggregation to provide wider service areas for consumers and to lower costs of providing service. Rather than forcing replication of this costly and time-consuming process, we are beginning with larger service areas, which we expect to minimize the need for costly post- auction transactions. We also hope to spur market competition from new PCS providers by starting with larger initial geographic service areas to alleviate the cellular headstart advantage. We realize that the MTA and BTA license boundaries do not coincide with existing cellular license boundaries, but feel that the costs imposed by these different license boundaries will be outweighed by the benefits of larger initial service areas. We are cognizant of problems created by overlaps between the PCS and cellular service areas, and provide some relief from these problems. (See Cellular Eligibility, infra.) 77. We also are rejecting the suggestion that all licenses should have the same geographic scope whether MTAs (as proposed by PCS Action), BTAs (as proposed by BellSouth, CTIA, and Nextel) or Department of Commerce Economic Areas (proposed by NTIA). While identical geographic areas may impose more initial competitive parity, we do not believe that this will maximize competitiveness and participation in the provision of PCS services. Licensing all blocks on an MTA basis might increase competitiveness with cellular, but it would limit the ability of cellular companies and designated entities to participate in the provision of PCS. Cellular companies could be restricted because of overlaps with MTAs that might not occur with BTAs. Designated entities are likely to be better able to finance the construction of PCS across a BTA than an MTA. Thus, by licensing some blocks on a BTA basis, we comply with Congress' directive that we prescribe area designations that promote economic opportunity for a wide variety of applicants, including small businesses, rural telephone companies, and business owned by members of minority groups and women. 78. We therefore continue to feel that a combination of MTA and BTA licenses will give licensees the opportunity to select and combine service areas and promote broad participation in the provision of PCS services by firms of various sizes. Licensing two of the 30 MHz blocks on an MTA basis will permit these licensees to operate in large service areas which will facilitate interoperability and roaming across wide geographic areas. Licensing the third 30 MHz block on a BTA basis will not preclude such efficiencies because of the ability to aggregate licenses geographically. In addition, in much the same way as the variety of spectrum block sizes allows various strategies, the variety of geographic sizes will allow firms to determine the optimal geographic strategy they wish to pursue. This will also help us to meet the statutory objectives of disseminating licenses to a wide variety of licensees. In addition, allocating four of the six licenses on a BTA basis addresses the concern that rural buildout would not occur with MTA licenses. 79. Finally, we concur with Pegasus' suggestion with regard to the Puerto Rico service area and will provide two separate BTA service areas in Puerto Rico, one for Mayaguez/Aguadilla-Ponce and the other for San Juan. This action recognizes the difficulties created by the mountain range separating these two areas. No parties opposed this request and we find this adjustment to be in the public interest. 5. Geographic Partitioning 80. In its petition, McCaw asks us to permit applicants to subdivide PCS blocks and service areas. McCaw states that this would allow parties to bid jointly for PCS BTA and MTA licenses, and then subdivide the PCS operating authority on either a geographic or spectrum basis. It states that this approach would diminish the disadvantages created by using MTAs and BTAs rather than the significantly smaller cellular MSA and RSA service areas. This would allow cellular entities to offer PCS services in areas where they do not provide cellular service and yet would not qualify for licensing in the entire PCS service area. 81. Several parties responding to the petitions favor allowing partitioning of PCS service areas. For example, AIDE, CTIA and McCaw state that geographic and spectrum partitioning will promote efficient use of the spectrum and will encourage service in rural areas. AMT submits that partitioning will offer flexibility to PCS providers. GTE states that partitioning will expedite the introduction of new services, promote participation in PCS, and allow PCS to serve niche markets. Finally, CUC recommends that the Commission allow partitioning only within a specified time after licensing to ensure universal deployment of PCS and prevent licensees from warehousing spectrum that they do not intend to utilize. 82. Other responding parties oppose allowing geographic partitioning. For example, GCI and MCI argue that interested parties should form consortia to provide uniform service across areas instead of dividing the allotments. GCI, MCI and Nextel argue that allowing geographic partitioning would inject additional variables into the initial auction process and complicate the development of an orderly post-auction market. MCI contends that to avoid manipulation and evasion of the construction requirements, voluntary partitioning should be limited to geographic sizes no smaller than a BTA with no less than 10 MHz of spectrum, pending examination of the feasibility of smaller partitions in a separate rule making. 83. Decision. We agree with the parties that oppose permitting geographic partitioning at this time. We find that there is a significant risk that partitioning can be used to circumvent construction requirements. While there may be efficiency enhancing geographic partitions, much of the benefit can be obtained through other arrangements that do not raise the same concerns about circumvention of our construction rules. On balance, we conclude that we should not adopt a policy allowing general geographic partitioning, but recognize that the balance may be different for particular groups of service providers, such as rural telephone companies or to create PCS ownership opportunities for companies owned by minorities or women. Therefore, we will consider the issue of geographic partitioning for rural telephone companies and other designated entities in our forthcoming Order, to adopt specific competitive bidding rules for broadband PCS in PP Docket No. 93-253. There we will address other designated entity preferences and will rely on the record in both proceedings in making our final determinations on this matter. Also, we will address whether we should recover the unserved PCS areas at the end of the ten-year construction period, in a later proceeding after we have had an opportunity to assess the scope of system build-outs. 6. Unlicensed Devices 84. In developing a band plan for PCS, we have had to weigh the spectrum requirements of licensed PCS with the amount of spectrum allocated for unlicensed PCS. For reasons described above, the new band plan moves all of licensed PCS to the lower band. As a result of this change, we have had to reduce the amount of spectrum available for the operation of unlicensed PCS devices from 40 to 20 MHz. This is the amount of spectrum we originally proposed for unlicensed devices. Despite having less spectrum available for unlicensed PCS devices in the near term, we believe the new band plan will have an overall positive effect for consumers in terms of the diversity and utility of unlicensed devices available on the market, as well as the rapid deployment of competitive licensed PCS Services. 85. One reason we reach this conclusion is that even without this change it is unlikely that the 20 MHz reallocated to licensed from unlicensed would have been used in the near term for unlicensed. The spectrum at 1890 to 1910 MHz was regarded as less desirable than the 20 MHz retained for unlicensed PCS at 1910-1930 MHz because it contains significantly more microwave incumbents. Our expectation was that unlicensed devices first would operate on the 1910-1930 MHz spectrum because the cost of clearing this spectrum is significantly less. Licensed PCS providers, by contrast, provide ample evidence in the record that they are ready to begin the relocation of microwave incumbents in the lower band and provide service in the near term and can use the spectrum from 1890-1910 MHz rapidly. Thus, consumers are more likely to obtain immediate benefits if we allocate this spectrum to licensed PCS rather than for unlicensed PCS devices. 86. Another benefit of the new band plan is that the licensed and unlicensed PCS spectrum will be located in close proximity on the lower band. Consumers will have more choices for equipment that operates on both unlicensed and licensed PCS bands, and will not have to buy higher-priced equipment that operates on both the lower and upper PCS bands to have available the full array of service options with a single piece of equipment. Finally, we intend that the initial 20 MHz allocation for unlicensed PCS devices meet the near term spectrum requirements for unlicensed devices. To consider the long-term spectrum requirements of unlicensed PCS devices, we intend to issue a Notice of Proposed Rule Making in the near future to identify additional spectrum for unlicensed PCS devices. 87. For the reasons set forth above, therefore, we conclude that consumers and manufacturers of equipment intended for use on the unlicensed band will benefit from the new band plan. This does not diminish our concern that there be sufficient spectrum allocated for unlicensed PCS devices to accommodate expected demand, and therefore as noted above, we are committed to instituting a further rule making for this purpose to meet the long term requirements for unlicensed PCS devices, including those potential unlicensed uses that may not be accommodated readily in the initial 20 MHz allocation. B. Private Use 88. In their petitions, UTC and APCO request that we set aside a portion of the licensed PCS spectrum for private PCS operations such as public safety or internal company use. UTC argues that essential public services and private industries require advanced mobile/portable communications capabilities that cannot be provided by commercial PCS. Further, UTC states that the current rules preclude the development of such private systems. UTC also states that for private users: 1) 10 MHz channels are too large for a single licensee's requirements; 2) the construction requirements are impractical and inappropriate; 3) the service areas do not correspond to the service territories of private entities; and 4) competitive bidding is inappropriate for public safety and private systems. APCO agrees, and argues that public safety agencies need spectrum for new life- saving communications technologies that will not, and cannot, be provided by carrier- based services such as PCS. APCO states that Congress repeatedly has mandated that radio services that are necessary for the safety of life and property deserve special consideration in the allocation of spectrum. 89. Several parties, including APC, MCI, Sprint, PCIA and TDS, oppose allocation of PCS spectrum for the private use of utilities and public-safety organizations. These parties argue that private organizations will have full access to unlicensed PCS and that PCS licensees will have incentives to structure systems for the internal use of private organizations. Sprint states that reducing the amount of spectrum available for commercial PCS licenses would compromise the competitiveness and viability of PCS. Sprint also notes that providing emerging technology spectrum for private use would not provide auction revenue for the government. On the other hand, API and ITA support a separate spectrum allocation for "private PCS" systems, arguing that many private communications operations cannot be transferred to public systems due to service reliability concerns. 90. Decision. We agree with the parties who argue that both commercial PCS service and unlicensed PCS devices will be able to meet many of the communications requirements of private entities. The PCS licensees will be permitted to tailor specific service applications to the particular needs of individual organizational customers. Any such service applications, of course, must be consistent with policies we have established for the regulation of commercial mobile radio services under Title II of the Communications Act. Such applications could include the use of dedicated capacity. Where such arrangements might not be satisfactory, entities desiring spectrum solely for internal private use could, of course, bid for licensed PCS spectrum individually or as a group intending to share the licensed facilities. Companies that value private use of the spectrum highly could win a license at auction; otherwise they could contract with a licensee to provide the services they need, or procure such services from resellers. Moreover, as many commenters argue, we believe that setting aside spectrum for private interests would not help us achieve the goals set forth for PCS, and at the same time, could detrimentally affect competitive service provision and the efficient allocation of scarce spectrum resources. Also, the extent to which additional spectrum is required for private and public safety use is being considered in a separate proceeding that addresses allocation of spectrum below 5 GHz transferred from Federal government use. Accordingly, we will deny UTC's and APCO's requests that we set aside a portion of the spectrum allocated to PCS exclusively for private PCS operations. C. Mobile Satellite Services (MSS) Issues 91. AMSC, Comsat, and TRW argue for preservation of the 2180-2200 MHz band for future allocation to MSS. The petitioners oppose allocation of spectrum to PCS that has been allocated internationally to MSS, contending that such allocation is inconsistent with the United States' support for these allocations at WARC-92 and impedes the introduction of global MSS. In their comments, AMSC claims that since sharing between MSS and the Broadcast Auxiliary Service in the 1990-2010 MHz band may be possible, the MSS paired frequencies at 2180-2200 MHz should not be allocated to PCS. Comsat and TRW argue that the Notice did not propose to consider allocation to PCS of the 2180-2200 MHz band and that parties were therefore denied the opportunity to comment fully on this issue. TRW argues that we should reallocate the entire 1970-2010 MHz and 2160-2200 MHz bands to MSS to match the international allocations. To preserve at least the worldwide MSS allocations, TRW suggests that the four 10 MHz PCS blocks in the 2130-2150 MHz and 2180-2200 MHz bands be relocated to the 2110-2150 MHz band. Motorola also filed a petition stating that, while it supports allocation of sufficient spectrum for terrestrial PCS, the Commission should initiate a separate proceeding to identify and allocate additional spectrum outside the PCS bands for MSS. 92. Most responding parties oppose the petitioners' requests that additional spectrum be reserved for MSS. MCI, Sprint, UTC, API and Bell Atlantic oppose reallocating any of the PCS spectrum to MSS. API and UTC state that while MSS can offer a wide range of valuable services, an adequate spectrum reserve for the development of MSS has been established and no more should be allocated. MCI states that, to the extent the Commission believes there may be a future need for additional MSS spectrum, the Commission should initiate a separate proceeding to identify and allocate other bands for MSS. UTC argues that the over 100 MHz allocated for MSS is more than sufficient. It contends that the petitioners' real concern appears to be that there should be sufficient spectrum to accommodate all potential MSS applicants rather than that the overall allocation to MSS is insufficient to meet expected demand. Sprint and Bell Atlantic support the allocation of 120 MHz for broadband PCS and oppose reallocating any of that spectrum to MSS. Sprint states that to do so would compromise the competitiveness and ultimate viability of PCS. 93. In reply comments, TRW, AMSC, Comsat, and LQSS support reallocation of the 2180-2200 MHz band from PCS to MSS. Comsat and LQSS agree with TRW that we could substitute other spectrum for PCS to replace the 1980-2200 MHz band. AMSC opposes expansion of the PCS proceeding to include the possible allocation of the 1990- 2010 MHz band to MSS. It argues that the current allocation of this band to broadcast auxiliary operations is necessary, that these frequencies are already congested and that there currently is no evidence that sharing between broadcast auxiliary operations and MSS would be feasible. 94. Decision. We recognize the potential value of MSS as a service provider to rural areas that may not be economically served by PCS. We have thus given the petitions of MSS interests, including the various alternatives they suggest, careful consideration. Having been instrumental in obtaining the international MSS allocations at WARC-92, we would not wish unnecessarily to reduce our flexibility to implement those allocations in the U.S. On the other hand, we must also recognize the large potential value of PCS which is a matter of record in this proceeding. It should be noted that these MSS bands are also allocated internationally to fixed and mobile services. PCS, as we have broadly defined it, fits within the international definition of fixed and mobile services and is thus consistent with international agreements on the use of this spectrum. Because spectrum is a limited resource, we find that to satisfy our goal of allocating sufficient spectrum for a competitive PCS service, we must allocate to PCS a portion of the spectrum internationally designated for MSS. We believe the new plan we are adopting today strikes an appropriate balance between these two services and will provide maximum benefits to U.S. consumers. 95. We disagree with the assertion of Comsat and TRW that we provided insufficient notice and opportunity for comment on the possibility that we might allocate a portion of the internationally designated MSS spectrum to PCS. The PCS Notice sought comment on a wide range of allocation options for licensed PCS ranging from three to five spectrum blocks of from 20 to 40 MHz each. Several of the possible combinations of block size and number of blocks would require the use of spectrum in the bands designated internationally for MSS, and at least one option (i.e., five blocks of 40 MHz each) would require virtually all of that spectrum. We specifically called attention to the fact that some of these options would necessarily require the use of spectrum in other emerging technologies bands, and we did not exclude emerging technologies bands that had been designated internationally for worldwide or Region II MSS. Thus, contrary to petitioners' contentions, we believe that parties were given adequate notice of the possibility that our final PCS allocation could include some or even all of the internationally allocated MSS spectrum in these bands. 96. Under the new band plan, the entire allocation to broadband PCS is located in the 1850-1990 MHz band. The 2180-2200 MHz band, which was allocated to PCS in the Second Report and Order has been returned to reserve status for future allocation potentially to MSS, as requested by the MSS interests. Our new band plan, however, removes an equal amount of spectrum from potential consideration for MSS in the band 1970-1990 MHz band, 10 MHz of which can be used for Region II MSS service. We believe that our new band plan accommodates the future potential of MSS more fully than our original plan and therefore addresses the concerns of a majority of the MSS industry. 97. By shifting the PCS allocation out of the 2180-2200 MHz band we have preserved the option of allocating some or all of that spectrum to MSS in the future. This preserves 50 MHz of the 60 MHz allocated worldwide and thus fits more closely with our international agreements. Twenty MHz of this worldwide MSS spectrum is paired with spectrum inside the current broadcast auxiliary band. In the future, this spectrum could potentially be reallocated for MSS use on a shared basis, if feasible, or exclusively, if suitable replacement spectrum could be found for broadcast auxiliary service. It is our intent to initiate a proceeding to investigate these additional allocation possibilities in the near future, with the purpose of accommodating MSS operations within the remaining internationally designated bands, while at the same time maintaining sufficient spectrum for broadcast auxiliary use. We also intend to pursue additional international allocations for MSS at WRC-95. IV. OWNERSHIP RULES AND CELLULAR ELIGIBILITY 98. In the Second Report and Order, the Commission recognized that permitting cellular licensees to participate in PCS could foster rapid development of PCS by taking advantage of cellular providers' expertise, economies of scope between PCS and cellular service, and existing infrastructures. The Commission also recognized that new entrants would foster competition and expressed concern about potential anticompetitive conduct by parties with cellular and PCS interests in the same geographic area. To balance these competing interests, we permitted cellular licensees to obtain PCS licenses outside of their cellular service areas, but restricted them each to one 10 MHz PCS license within their respective cellular service areas. 99. For the purposes of its PCS rules, the Commission defined an attributable cellular interest as ownership of 20 or more percent of a cellular license. If an entity has attributable cellular interests in a license or licenses individually or jointly covering 10 or more percent of the population in a PCS service area, then that entity would be restricted to one 10 MHz PCS license in that area. If an entity holds interests of less than 20 percent in a cellular license, these interests are not considered attributable and the population covered by that cellular license area is not counted towards the 10 percent population threshold. If an entity holds attributable cellular interests, i.e., interests of 20 percent or more, in licenses that individually or jointly cover less than 10 percent of the population in a PCS service area, that entity may hold licenses for up to 40 MHz of PCS spectrum in that PCS service area. Entities that have attributable interests that put them over the 10 percent population overlap threshold in a PCS service area are deemed "in market" cellular entities and as such may only hold 10 MHz of PCS spectrum in that PCS service area. 100. The 20 percent attribution rule applies on a cumulative basis to all parties with ownership interests in cellular operations. Thus, for example, if four participants in a PCS venture each have an ownership interest of 5 percent in the same cellular licensee serving more than 10 percent of the population of a BTA, the PCS venture in which they all have an interest is deemed to have a 20 percent cellular ownership interest and is restricted to one 10 MHz frequency block in that BTA. However, if the four parties to a PCS application each own 5 percent interests in four different cellular licensees, each of which serves 10 or more percent of the BTA, together they are not restricted to one 10 MHz block because they do not exceed the 20 percent attribution threshold as to any single cellular license. Therefore, in the latter instance, the parties are permitted to purchase a full 40 MHz PCS spectrum block. 101. Twenty-four parties petitioned for reconsideration of various aspects of the cellular eligibility rules and the general attribution standard used for invoking our PCS ownership limits. The petitioners address: 1) eligibility of cellular licensees; 2) the 20 percent attribution standard; 3) the 10 percent population standard; 4) post- auction compliance by cellular licensees with the ownership restrictions; 5) exemptions from the eligibility restrictions for certain cellular providers; and 6) the interests that should be deemed attributable for purposes of calculating ownership and control of a PCS or cellular license. A. Eligibility of Cellular Licensees for PCS Licenses 102. Six parties advocate eliminating all eligibility restrictions on cellular providers. Fourteen parties agree with the concept that there should be some restrictions on cellular participation in PCS. These latter parties' positions range from agreeing with the standards of the Second Report and Order to arguing for different measures of both coverage and ownership to favoring different standards entirely, but these parties all accept the idea that there should be limitations on cellular entities holding PCS licenses. 103. We have decided to retain restrictions on cellular participation in PCS. In making this decision, we are aware of the benefits that the cellular industry has to offer PCS, as TDS and McCaw note, including capital, economies of scope, and experience and expertise in the provision of mobile communications services. For this reason, we will continue to allow cellular participation in PCS. In addition, we will make some changes in the specific standards of the Second Report and Order, but we remain convinced that restrictions on in-market cellular providers are necessary to achieve our goal of maximizing the number of new viable and vigorous competitors. In reaching this conclusion we do not assume that in-market cellular providers will engage in illegal anticompetitive behavior. We agree with the assertion of Dan Kelley of Hatfield Associates that our goal in crafting these rules should not be to prevent anticompetitive behavior which may or may not materialize, but rather, to promote competition. Bell Atlantic's assertion that we should not restrict cellular participants because we have no basis for assuming that cellular providers will behave anticompetitively in the PCS market, does not address our goal of promoting vigorous new competition. Similarly, McCaw's arguments that existing cellular providers have minimal market penetration do not respond to our desire to provide consumers with as many competitive choices as possible. We conclude that the public interest would be best served by maximizing the number of viable new entrants in a given market. 104. Finally, while some petitioners, such as Radiofone, point out that SMR and MSS providers are not subject to the same eligibility restrictions as cellular providers, only U.S. West affirmatively requests that the eligibility restrictions of the Second Report and Order be extended to wide-area SMR services. US West claims that wide-area SMR is competitive with PCS and cellular services and asserts that the competitive concerns that apply to cellular systems also apply to wide-area SMR operations. AIDE and Time Warner agree with U.S. West that cellular eligibility limitations should also apply to wide-area SMR providers, because wide-area SMRs are expected to compete with cellular and PCS. Nextel, however, opposes the application of cellular eligibility restrictions to wide-area SMR systems. It states that extending the eligibility restrictions to wide-area SMR systems is beyond the scope of this proceeding and that wide-area SMR operation is too new and too small to have the capability of behaving anticompetitively. We agree with Nextel that imposing eligibility restrictions is beyond the scope of this proceeding. We are, therefore, addressing in another proceeding the eligibility of wide-area SMRs and other commercial radio services to participate in PCS. B. Attribution Rules 105. In the Notice of Proposed Rule Making in this proceeding, we noted our expectation that PCS and cellular licensees serving the same area will compete on price and quality of service. We therefore stated that competitive benefits might be reduced if cellular licensees are permitted to acquire PCS licenses within their service areas and proposed an outright prohibition on cross-ownership of PCS licenses by entities with cellular interests, except that ownership interests of less than one percent (or less than five percent for publicly traded companies) would not be considered. In the Second Report and Order, we found this approach too restrictive. Although we still sought to avoid the potential for undue market power by entities with significant existing market share, we balanced that goal against recognition of the expertise that cellular licensees would bring to PCS markets. We also noted that many entities possess non-controlling interests in cellular licensees exceeding 5 percent but, due to the non-controlling nature of their equity interests, create little potential for anti-competitive behavior. 106. We therefore adopted a simple, bright-line 20 percent cross-ownership attribution standard, pursuant to which entities with 20 percent or greater ownership of a cellular operator were limited to one 10 MHz BTA license for broadband PCS in the same region as their attributable cellular interests. We did not distinguish between different types of ownership such as voting and non-voting stock and general and limited partnership interests. We noted, however, that while a clear 20 percent ownership threshold may be more administratively efficient, a concern remained that some parties with cellular ownership interests will use our rules as an opportunity to control local cellular licensees while retaining less than 20 percent ownership. Since such occurrences would undermine our intent to limit cellular ownership in PCS, we said that we would review carefully this decision, and we explicitly put parties on notice that we would reconsider this limit if our intent to ensure competition between cellular and PCS would be undermined under the ownership rules adopted in the Second Report and Order. 107. With respect to ownership interests in multiple PCS licensees in a single market, we adopted a 5 percent attribution threshold for purposes of the 40 MHz PCS spectrum limit and for purposes of determining cellular ownership in a PCS licensee. We stated that PCS ownership interests of 5 percent or more will be attributed to the holder of the interest. In adopting this standard, we cited similar market-based concerns, noting our desire to "ensure that [no entity] is able to exert undue market power through partial ownership in multiple PCS licensees in a single service area." The 5 percent threshold is consistent with the ownership thresholds we apply to cellular and broadcast licensees. We did not find any potential advantages possessed by any existing PCS licensees inasmuch as there are no such licensees. Similarly, we did not discuss the need to accommodate settlements among PCS licensees resulting in non-controlling interests of between 5 and 20 percent because there are no such settlements in the PCS context. We therefore adopted this 5 percent limit for application to PCS multiple ownership, whereas it appeared too restrictive in the cellular-PCS cross-ownership context given the realities of existing historical cellular settlements. 108. Twelve parties petitioned for reconsideration of the cellular ownership attribution standard. The petitioners recommend the following alternatives: 1) raising the 20 percent level of permissible ownership in cellular licensees; 2) attribution based on control rather than ownership; 3) applying an affiliation standard like that in our telco-cable cross-ownership rules; 4) applying an attribution standard based on the rules used to enforce our alien ownership restrictions under Section 310 of the Communications Act; and 5) applying the same attribution rules to PCS as those we apply to broadcast interests. 109. Decision. We continue to believe that the PCS and cellular ownership attribution decisions we adopted in the Second Report and Order, with certain modifications, are appropriate and strike a reasonable balance between promoting vigorous competition and the advantages of allowing experienced mobile communications operators such as cellular licensees to participate as PCS licensees. We disagree with those parties, such as Bell Atlantic and GCI, that suggest the same 20 percent attribution limits should apply to cellular/PCS cross-ownership and to PCS multiple ownership. Generally, we would prefer to use the 5 percent standard for all cross-ownership situations, to maximize competition. We are adopting an attribution threshold of 5 percent for multiple PCS ownership purposes to prevent any party from exerting market power through substantial partial ownership in multiple PCS licensees in the same service area. We see no countervailing reason to risk reducing competition by raising this 5 percent limit for PCS multiple ownership limits. Moreover, the 5 percent threshold is consistent with ownership thresholds we apply to cellular and broadcasting. 110. Such a strict rule for PCS/cellular cross-ownership, however, would not recognize the history of cellular licensing. The 20 percent ownership attribution standard for cellular operators was adopted, in part, because settlements during the initial phase of cellular licensing resulted in partial and often non-controlling interests in those licensees. In light of this history, we believe it would be unfair and unduly restrictive to place the same 5 percent limit on cellular/PCS cross-ownership. For this reason, we decided to allow a 20 percent cellular ownership interest. Further, we believe that given the nature of these settlement agreements, permitting this level of ownership will not decrease the incentives for competition. Therefore we will not require divestiture to a lower level of ownership. The 20 percent standard permits many entities with partial, non-controlling cellular interests to participate in PCS. In adopting the 20 percent standard, we recognized that participation by cellular operators in PCS would offer benefits that include promoting early development of PCS by taking advantage of cellular providers' expertise and permitting attainment of economies of scope between PCS and cellular service and existing infrastructure. We therefore are making an exception to our usual treatment of cross-ownership for purposes of cellular-PCS cross-ownership. 111. We disagree with those entities such as CTIA that argue for a higher cellular ownership attribution threshold such as 35 percent. PCS Action states that if our PCS attribution standard were raised to CTIA's proposed 35 percent, a consortium of NYNEX, Bell Atlantic and Bell South, each holding 33 percent of the consortium, could hold all the 30 MHz MTA licenses in the areas covered by the three parties' CGSAs. According to PCS Action, this would amount to cellular control of PCS services in the entire East Coast and South. PCS Action concludes by advocating retention of the current standard. We believe that 20 percent is the proper standard. A higher attribution threshold (i.e., above 20 percent) for all incumbent cellular entities would tend to suppress competition, because the licensee would have economic incentives not to compete vigorously against competitors in which it holds a substantial equity interest. We conclude that these standards, with exceptions discussed below related to certain designated entities, remain appropriate, and accordingly we affirm them. 112. A number of parties, including Alliance, Bell Atlantic, Columbia, NYNEX, Pacific Telecom and PMN, request that we amend the attribution standard to base it on case- by-case determinations of control rather than the 20 percent attribution standard. Alliance and others contend that 20 percent is too restrictive and unnecessarily limits participation in PCS by entities that have only passive interests in cellular systems. Bell Atlantic and NYNEX also advocate examining only legal control. Bell Atlantic argues that this standard should apply to both cellular/PCS and PCS/PCS ownership. NYNEX argues that a standard based upon control would ensure that cellular carriers and local exchange carriers are able to provide needed capital and expertise to PCS. CCIMR advocates applying broadcast ownership attribution standards, arguing that these rules distinguish between ownership and control and are as easy to administer as the 20 percent attribution standard. 113. Our goals here include ensuring that the holder of the PCS license has strong incentives to compete against the cellular licensees in the same geographic market. A PCS licensee that has a large equity stake (i.e., more than 20 percent) in a cellular license in the same area has less incentive to compete vigorously against its own equity interest in a cellular provider, even though it may not exercise legal control over the cellular licensee. We believe that our attribution rules provide the right balance between maximizing competition and allowing cellular entities to bring their expertise to PCS. We therefore will not adopt a rule that would require us to find that a party had a "controlling interest" in a cellular licensee before it would be prohibited from investing in a PCS licensee in the same area. Such a rule could substantially delay the licensing of PCS and would not serve our goal of promoting vigorous competition between PCS and cellular licensees in the same area. We believe the bright-line rules we are adopting will result in a faster, less burdensome licensing process. 114. We also reject the suggestion by Time Warner that we prohibit all "affiliations" between cellular and PCS licensees in the same market, along the lines of our telco-cable cross-ownership rules. These rules, which are even more restrictive than our broadcast attribution rules, would not provide the flexibility to recognize the history of settlement agreements in cellular licensing and would not allow us to draw on the experience and expertise provided by cellular providers who have low equity stakes. They also might have the effect of restricting contracts between PCS licensees and companies financing their equipment and the build-out of their PCS systems, which could seriously impair rapid investment in and deployment of PCS systems. 115. Comcast recommends that we adopt the attributable ownership standard used to apply the alien ownership restrictions of Section 310(b) of the Communications Act, along with policies found in the broadcast rules. Comcast notes that these alien ownership provisions recognize both voting and non-voting stock in determining percentage of ownership. Comcast also suggests that we adopt the "multiplier" policies of our broadcast ownership rules. Comcast claims that the use of these standards together, because they are clear and well-defined, would help a potential PCS investor decide whether to invest in PCS. 116. We disagree that the alien ownership rules provide a clearer guide than our present attribution standards. Because the alien ownership restrictions set forth in section 310(b) of the Communications Act were created specifically to avoid an undue concentration of foreign influence in the direction of entities involved in communications, the attribution thresholds defined in that section are more complicated than the 5 percent/20 percent bright- line thresholds which we have adopted here. Further, unlike our rules in the broadcast context, we will not allow use of a "multiplier" in the case of multi-tiered entities; the interest of the subsidiary is attributed in full to the parent. We agree, however, that both voting and non-voting stock should be included in determining percentage of ownership of PCS and cellular entities. 117. In determining attributable interests for the purposes of both the 20 percent cellular/PCS cross-ownership rule and the 5 percent PCS/PCS multiple ownership rule, we agree with some of the parties that some clarifications and modifications to our attribution rules are warranted. Our attribution rules must be simple for applicants to understand because they are essential to enforcement of our PCS spectrum cap and our PCS/cellular cross-ownership rules. In the Second Report and Order, we stated that we would consider all equity ownership, including voting and non-voting stock and limited partnership interests, in calculating the percentages of attributable ownership interest in a PCS or cellular licensee. We explained that we would count these interests even if they did not confer on the holder meaningful participation, because the public interest would best be served by a "bright-line" test. We continue to believe that our ownership rules should be clear and easy to administer, and, to that end, we will provide further clarification about which of our ownership rules from the broadcast regime will be applied to PCS. We decline to adopt the full panoply of attribution rules that we apply in the broadcast and in the telco/cable contexts because we believe that the restrictions we are adopting will be sufficient to prevent undue influence and preserve competition. 118. We clarify that, for purposes of these ownership rules, controlling interests per se are attributable. As in other contexts, "control" means not only majority equity ownership, but includes any general partnership interest, or any means of actual working control over the operation of the licensee, in whatever manner exercised. We will rely on existing case law for making control determinations where such issues arise. 119. We also clarify that PCS equity investments of 5 percent or more, and cellular equity investments of 20 percent or more, also are attributable. These equity interests are attributable because they support our goals of developing a competitive PCS service and reducing the incentive for any entity to retard the capability of the new PCS licensee to compete with the cellular or any other PCS licensee in which the entity has an attributable interest. Specifically, the following equity investments will be counted: voting stock, non- voting stock, and limited partnership interests. The percentage of ownership interest in a limited partnership will be based on the partner's economic interest in the partnership. Therefore, the Commission will assess the percentage of the partner's capital contribution as well as the percentage of profits and losses allocated to the partner. As noted above, general partnership interests are deemed attributable regardless of equity percentage because of the control conferred on general partners by the nature of their interest. The following investments are not attributable for multiple or cross-ownership purposes: debt interests, including loans secured by the equipment used in the licensed system, and equity interests below the 20 percent and 5 percent thresholds. These interests are of less consequence to or independent of the entity's performance and therefore provide little incentive to delay or dilute the participation of the new PCS license in the market. In addition, consistent with other multiple- and cross-ownership attribution standard, convertible debt instruments or options with rights of conversion to equity interests shall not be attributed unless and until conversion is effected. 120. We also clarify that the interests of a cellular or PCS licensee, or entity in control of a licensee, are attributed to the officers and directors of that entity. We remain concerned about the ability of such individuals to exert influence over companies in which they have significant managerial responsibility. Therefore, if an officer of a company wishes to invest in a PCS market, he or she may only do so if this company itself could make the same investment in compliance with our rules. 121. We also will not allow an exemption for minority investors in companies controlled by a single majority shareholder. Although these rules are used in the broadcast area to exempt from attribution entities not believed to be able to exercise control over a licensee, in the context of PCS we believe that not allowing use of a "multiplier" serves our goal of maximizing competition. These rules will help ensure against undue influence, short of control, by minority stockholders and distant stockholders in parent or intermediate corporations. 122. Through an ongoing proceeding concerning multiple ownership of commercial mobile radio service (CMRS) licensees, we will address whether we should change our rules to restrict or attribute resale, management agreements or other ownership arrangements that could confer possible anticompetitive incentives on parties with multiple CMRS interests. This proceeding will examine whether and to what extent such arrangements could be used to exert control over more spectrum than is permitted under our PCS spectrum cap (40 MHz) or the proposed CMRS spectrum cap. C. Attribution Rules for Certain Designated Entities 123. Several petitioners request that we exempt from the cellular eligibility restrictions certain classes of cellular owners, such as rural telephone companies or other designated entities. INS, TDS, Intelco and OPASTCO all request us to exempt rural telephone companies from the cellular eligibility restrictions. INS, for example, argues that most rural telephone companies are merely passive investors in cellular licensees, incapable of exercising market power. It argues that PCS could be introduced in rural areas more rapidly through consortia of rural telephone companies. OPASTCO argues that Congress directed the Commission to ensure that opportunities exist for rural telephone companies, among others, to participate in spectrum-based services and that the current cellular eligibility rules exclude meaningful participation in PCS for many rural telephone companies. Similarly, Intelco contends that rural telephone companies should not be prohibited from bringing PCS to less populated areas simply because they previously invested in cellular licenses serving such areas. USTA argues that all cellular eligibility limits should be eliminated on the grounds that such limits will restrict the full participation of small and mid-sized cellular providers, who are more likely to bring full PCS service to under-served areas. 124. Most commenting parties generally favor exemptions for rural telephone companies and consortia led by designated entities. For example, CUC argues that rural telephone companies are most likely to deploy PCS in rural and remote areas and therefore should be encouraged to do so. RCA contends that the cellular interests of rural telephone companies cannot exercise market power. NRTA states that the Congress intended to ensure that new technologies are available to the residents of less populated areas, and that applying the cellular eligibility restrictions to rural telephone companies that hold significant but non-controlling interests in cellular licenses is incompatible with the intent of Congress. 125. Decision. We agree with INS, OPASTCO, TDS and Intelco that relaxing the cellular eligibility restrictions is appropriate for designated entities. We recognize that many designated entities are merely passive investors in cellular operators and, because of their size, are unlikely to influence pricing decisions. In addition, we seek to address Congress' goal of encouraging the participation of designated entities in the auction process and in the provision of spectrum-based services. We believe that designated entities which have some interests in cellular operations may be especially effective PCS competitors because of their cellular experience. This will help ensure that service is brought quickly to underserved areas and that designated entities become viable competitors. In particular, we believe that rural telephone companies and some small cellular companies, due to their existing infrastructure, are uniquely positioned rapidly to introduce PCS services into their service areas or adjacent areas. However, we are not exempting designated entities entirely from the cellular eligibility rules, because such an exemption could foreclose from competition from a new PCS entrant. To the extent that designated entities are involved in the control of cellular services, we remain concerned that there is potential for some of these parties to compete less vigorously in the nascent PCS industry. In balancing these interests, we conclude that increasing the cellular attribution threshold for designated entities from 20 percent to 40 percent, if non-controlling, would be appropriate and would further the Congressional mandate noted above. Accordingly, we will permit a designated entity to hold a non-controlling equity interest of up to 40 percent in a cellular licensee without being subject to the cellular PCS eligibility restrictions. 126. AIDE and Comcast support exempting from the PCS eligibility restrictions those cellular entities with minority interests in consortia controlled by designated entities. AIDE states that such an exemption would serve the Congressional intent that designated entities have opportunities to participate in PCS. Murray supports the recommendation of the FCC's Small Business Advisory Committee that only parties that form alliances with designated entities be exempt from eligibility restrictions. Cablevision, on the other hand, opposes an exemption for cellular parties that participate with designated entities in PCS. Cablevision argues that the potential for the cellular provider to exercise undue influence over the PCS licensee is too great to be ignored given the superior knowledge and experience of the cellular provider. 127. We have decided to increase the cellular attribution threshold from 20 percent to 40 percent for any entity proposing to invest in businesses controlled by members of minority groups and/or women. An entity may hold up to a 40 percent interest in cellular licensees before its cellular interests will be deemed attributable, but must limit its participation in a PCS licensee controlled by women or minority group members to a non-controlling interest. We believe that this action will encourage entities with attributable cellular interests to make non-controlling investments in businesses owned by minorities and/or women, furthering Congress' objective of ensuring the participation of these entities in the competitive bidding process by encouraging an alternative source of financing. The record indicates that the main challenge that minorities and women face when seeking to participate in telecommunications licensing is ready access to capital. Investments by cellular providers in these designated entities should increase the entities chances for success in the auctions and later in service competition by providing access to capital and valuable industry experience. 128. We are not, as requested by Comcast and AIDE, granting a blanket exemption to in-region cellular parties with 40 percent or greater equity or control to participate in consortia that include designated entities. Such an exemption would allow a cellular entity to control a cellular license and create the potential for the entity to influence the PCS licensee to compete less vigorously. As Cablevision observes, the potential for a cellular entity to exercise undue influence over the PCS licensee, especially absent limits on the control exercised by the cellular carrier over the designated entity and its own cellular license, is too great, given the superior knowledge and experience of cellular providers. Therefore, we have relaxed the cellular attribution standard to permit entities that hold up to 40 percent non-controlling equity in cellular licensees in the same service area to make non-controlling investments in PCS licensees controlled by woman- or minority-owned businesses. Because their investment will be non-controlling in both the PCS and cellular license, the threat to competition is diminished. We believe that this relaxed standard encourages availability of capital to PCS businesses owned by women and minorities, yet guards against the dominance of these designated entities by entities which also control a cellular license in the same service area. 129. Comcast requests that the Commission exempt non-wireline cellular carriers from the cellular eligibility rules. Comcast asserts that we have focused too narrowly on wireless competition in devising the cellular eligibility rules. Comcast argues that PCS is a competitor to the wireline "local loop" service of local exchange carriers (LECs) and that one 10 MHz block is not adequate to provide service that is competitive to the wireline local loop. Comcast argues that non-wireline cellular providers have not posed competitive problems, and therefore should be allowed full participation in PCS. 130. Bell Atlantic opposes Comcast's request that we exempt non-wireline cellular providers from the PCS eligibility restrictions. Bell Atlantic argues that Comcast is merely trying to improve its competitive position by this request. PMN agrees that non-wireline cellular carriers should not be entitled to special treatment. 131. We deny Comcast's request that we exempt non-wireline cellular carriers from the PCS attribution rules. Comcast's arguments, which we considered in the Second Report and Order, could impair successful achievement of our goal of creating the maximum number of new competitors. 132. We believe that these important modifications will increase the efficacy of our cellular eligibility rules by guarding against the improper exercise of market power by cellular providers through controlling interests in PCS systems overlapping their cellular coverage areas. We believe that these changes will better address our concerns regarding reduced competition without unnecessarily restricting the ability of cellular providers to participate in PCS, and will provide further incentives for investment in and participation by designated entities in PCS. D. Population Standard 133. When we adopted regulations restricting the eligibility of certain cellular licensees to hold PCS licenses within their cellular service areas, we noted assertions that cellular operators might have unfair competitive advantages over PCS licensees. On the other hand, we also noted the valuable contributions that the expertise of cellular providers could provide to the PCS industry. Finally, we noted that, because of different geographic licensing boundaries for cellular and PCS, there was a potential for excluding cellular providers from PCS markets even though the degree of overlap was minimal. We decided that such an exclusion was neither fair nor desirable for maximizing competition. In resolving these conflicting interests, the Commission adopted the 20 percent ownership attribution rule to define cellular ownership for purposes of the PCS rules. For entities at or exceeding 20 percent ownership, we applied a 10 percent population coverage overlap test to determine whether the cellular licensee would be restricted to a single 10 MHz PCS license. 134. Florida Cellular, PNSC and CTIA request higher population coverage overlap thresholds. Florida Cellular states that the coverage threshold should be raised to 20 percent so that cellular carriers can compete with PCS carriers in providing mobile services. PNSC requests a 20 to 30 percent threshold, claiming that a 10 percent threshold is unduly harsh and unjustified. CTIA argues for a 40 percent overlap threshold and provides a market analysis based on the merger guidelines of the Department of Justice and the Federal Trade Commission to support its claim that this degree of coverage overlap will not result in anticompetitive conduct. Radiofone also objects to the 10 percent population threshold. 135. Cablevision responds that the petitioners requesting a revision of the cellular eligibility rules raise no new facts or arguments and that their petitions therefore should be denied. Cablevision states that the Commission's finding that broadband PCS and cellular will compete justifies maintaining the cellular eligibility rules adopted in the Second Report and Order. AIDE agrees, arguing that cellular providers are unlikely to be aggressive in introducing PCS services in their service area. Similarly, CIS argues that any relaxation of the current rules would allow Regional Bell Operating Companies (RBOCs) and large LECs with cellular holdings to dominate the PCS market to the exclusion of smaller operators. PCS Action also opposes the requests for changes to the current cellular eligibility threshold, arguing that the current standards appropriately limit cellular participation in PCS. Finally, Time Warner finds that our cellular eligibility rules strike an appropriate balance between preventing anti-competitive behavior and allowing cellular providers to participate in PCS. 136. Decision. We have decided to retain the 10 percent population overlap threshold adopted in the Second Report and Order. Our goal is to provide for entry into the PCS market for the maximum number of viable competitors. We remain concerned about the potential for cellular operators to exercise market power and to reduce the number of viable competitors in the PCS market. We believe that the 10 percent population overlap figure is justified and should foster robust competition and prevent competitive abuse. Balancing the potential benefits of the participation in PCS of cellular providers and the potential harms of reduced competition, we are convinced that the 10 percent coverage threshold is appropriate. With this limit we have ensured the opportunity for the emergence of the maximum number of competitors that the market will support for 90 percent of the population. Increasing this limit beyond 10 percent would create greater risk that consumers would be denied the benefit of vigorously competing service providers. We also believe that this threshold is an important means of encouraging new entrants in each area, thereby enhancing competition. On balance, we conclude that the 10 percent population coverage threshold promotes competition among licensees serving a significant percentage of the population, while providing some recognition of the overlaps that will result from the different licensing areas for PCS and cellular. In addition, as discussed below, we will allow divestiture for those entities with CGSA/PCS service area population overlaps between 10 and 20 percent. In reaffirming our 10 percent threshold, we reject proposals to adopt a national population measure or to use a multiplier formula. 137. Concord, GCI and MCI argue that coverage of the national population is a better measure of market dominance than coverage of population within a PCS service area. Concord states that the 10 percent overlap standard will preclude many small and mid-size local exchange carriers with partial interests in cellular carriers from participating in PCS. It recommends an eligibility threshold of 1 percent coverage of the national population to ensure that large cellular providers are not able to dominate the market. Concord argues that this standard would allow small and mid-size LECs to participate in PCS. GCI and MCI advocate barring the largest cellular providers from bidding on at least one of the 30 MHz blocks of PCS spectrum. MCI claims that consumer welfare will be served best by barring any cellular provider with more than 10 percent coverage of the nation's population from at least one of the 30 MHz blocks. GCI agrees, claiming that the bidding power of the largest cellular providers will allow cellular providers either to capture the nationwide PCS market or at least to prevent any other licensee from doing so. NYNEX specifically opposes the petitions by MCI and GCI, and asserts that all limitations on cellular participation should be eliminated. PacBell argues against the national population standard proposed by GTE and Sprint, and asserts that the 10 percent rule is clear on its face. 138. We do not believe that a national population test would achieve our goal of providing the maximum number of new competitors in each market. PCS is being licensed on a local and regional, not national basis. A cellular entity who operates in one city but has no presence in another city would be a new competitor in the latter city. We seek to encourage that entity's PCS participation in the second city, because of the likelihood that the experience and economics it brings from its cellular business will stimulate PCS development in the market and promote vigorous competition to other PCS licensees. 139. Two petitioners, GTE and Sprint, recommend a formula for determining eligibility. They suggest multiplying the percentage overlap of the population in the PCS and cellular service areas by the percentage ownership in the cellular provider, to arrive at an "effective POP" figure. Under this formula, an entity owning 25 percent of a cellular provider that covered 20 percent of the population of the PCS service area would have a 5 percent effective POP figure. GTE suggests that a effective population overlap of 20 percent would be an appropriate eligibility threshold, and Sprint advocates a 20 to 30 percent figure. These petitioners argue that this approach would allow companies to bid for MTA licenses in service areas where they hold only insulated, minority interests in cellular providers in the service area. They also contend that this approach would enhance the opportunities of independent rural and suburban telephone companies to participate in PCS. 140. We do not believe that this "effective POP" attribution rule would achieve our goal of maximizing the number of new competitors. Under this rule, an entity could have a majority equity interest in cellular licenses covering 40 percent of the population in that service area and remain eligible for 40 MHz of PCS spectrum. This would result in fewer competitive choices for 40 percent of the consumers in that market. This would not achieve our goal of maximizing competitive choices for as many consumers as pos